Anyone done a short sale?

[ancestry]

Educate the ignorant here, please. I never went through a short sale, but this is what I always understood:

If I owe the bank $250K and the house is only worth $200K. Why not just sell the house for $200K and pay the bank the difference? Why go through the rigamarole of a short sale and still wind up in the same place. I think the very purpose of a short sale is to get bank approval for selling for less than the mortgage.

Because you would need to have that $50K upfront at closing, which most people do not have.

When you get a mortgage the bank puts a lean on the house until you pay them all of their money.

When you sale the house the other person can't get a mortgage or title insurance until their lender can be guaranteed that they are getting a clean/clear title to the house.

To get a clean title any and all loans against the house/property must be paid off. In a traditional sale this must happen at or before closing.

 

[cats mom]

Definitely not my case at all. Got divorced, the ex moved out. He still helped pay some towards the mortgage, but not half. He was renting from a friend and couldn't pay more. I got a roommate; her, ex and I each paid 1/3 of mortgage. Roommate moved out getting her own place and I couldn't afford paying 2/3. House had been on market over a year asking enough to cover loan, but with the housing market crashing we just couldn't get enough. They asked how much we could afford to pay if we short-saled the house. I said $100/month. We are repaying $10,000. Ex pays all due to how we split the bills, $200/month.

So yours is a case where you used to be able to make the payment, but you can no longer do so. You're certainly not alone, especially in this economy, and there are myriad of reasons why folks are in that position... could be death, divorce, medical bills, reduction of income, job loss, and the list goes on and on.

I just wanted to make it clear that my comment about HELOC abuse and stupid loan products was not directed at any one who finds themselves in a position where they can no longer make the payment.

Sheesh, it's not necessarily even directed at strategic defaulters. I admit I used to find that morally reprehensible, but I'm beginning to soften my position a bit. I still wonder if all the bailouts have created a moral hazard and fundamentally changed the way contracts are viewed in our society, but that's a whole other discussion.

I was specifically answering a question about why people who can still make their payments might choose to do a short sale rather than a standard equity sale.

 

[GaSleepingBeautyFan]

Some banks won't approve a short sale. It happened to one of my son's friends moms (single mother, lost her job, couldn't find another one). The housing market collapsed and she was upside down on the house like so many other people.

When the bank said no to the short sale, the house went into foreclosure and they moved away.

My neighbor on the other side of me has their house on the market as a short sale. They have a short sale specialist real estate agent. According to my neighbor they just got a contract on it but the bank hasn't approved the short sale yet.

My neighbor said they had to do a hardship letter and several other things recently so maybe the bank will approve it for them soon. I'll be sad to see them move. They've been really good neighbors.

 

[ancestry]

I was specifically answering a question about why people who can still make their payments might choose to do a short sale rather than a standard equity sale.

I know of several cases where people could still make their mortgage payment but had to opt for the short sale. Primarily this happens when people need to move (unexpectedly) but their mortgage balance is way more than their house is worth and they don't have the cash to make up the difference.

With one situation I know of, the husband got transferred out of state. They were quite able to make the mortgage payment but didn't have enough to support two residences -- i.e. they couldn't pay for the mortgage and a new residence in the new state. They owed $60K more on their house than what the current market value was. Even *if* they had been able to find a traditional buyer they didn't have $60K sitting in the bank that they could bring to closing to make up the difference. Before walking away from the house completely (which they did consider) they opted for a short sale.

Morally correct or not, they figured they would quit paying their mortgage and move on with their lives. Fortunately the entire short sale thing worked for them but had it not they would have just let the house be foreclosed on.

Situations similar to this are happening to a lot of people. Mortgages and home ownership have been like having a noose around one's neck. Post housing market breakdown and in this poor economy, home ownership often isn't the American dream, rather it has become for many the American nightmare.

 

[cats mom]

Situations similar to this are happening to a lot of people. Mortgages and home ownership have been like having a noose around one's neck. Post housing market breakdown and in this poor economy, home ownership often isn't the American dream, rather it has become for many the American nightmare.

I agree. I'm definitely seeing a change in attitudes toward home ownership.

When we relocated about 5 years ago it didn't matter how we looked at prices in our new location... whether it was in terms of historical averages, price to rent ratios, price to income numbers, etc. they just didn't make sense. So we chose to rent instead of buy.

At first we got a lot of "you're crazy to throw money away on rent, yes it's expensive here, but prices just keep going up, so you better buy now or you'll be priced out forever" then it was "now that prices have dropped, you better jump in before the market turns around and takes off again" honestly we're still getting some of that, but not as often anymore. Now we're actually getting an occasional "you were really smart to rent instead of buying" comment. Gee, ya think?

Buying definitely is not the best option for everyone or in every situation. I think as a whole we forgot that for awhile. Maybe we'll get back to evaluating whether it really makes sense on a case by case basis. IMO that would be a very good thing.

Of course this doesn't apply to everyone, but I think plenty of folks whose only option right now is a short sale or a foreclosure probably never should have bought in the first place.

 

[ancestry]

When we relocated about 5 years ago it didn't matter how we looked at prices in our new location... whether it was in terms of historical averages, price to rent ratios, price to income numbers, etc. they just didn't make sense. So we chose to rent instead of buy.

I think you made a very smart decision. I'm envious.

We have had nothing but headaches ever since we bought our first house (we are in house #2 right now due to the previously mentioned move).

We would have been so much further ahead financially had we continued to rent. Between mortgage payments, taxes, repairs, upgrades, land-disputes with the neighbors ($$), home ownership has been a miserable experience.

Once our elderly pets pass-on and at least some of the kids move out of the house (we have four living here now) we have seriously talked about trying to sell and never owning again -- or if we do own perhaps a townhouse. Of course in order to sell the market needs to recover so we can recoup some of the house's value that we lost.

 

[AZMermaid]

I am going to be honest and I am ready for the flames. You made a commitment to that mortgage. Sell the house and pay off the difference you owe. If you can't, declare bankruptcy because you are, in fact, bankrupt. My best friend wanted to move. Her house was $100K under water. They saved some money and cashed out some retirement. The market will never recover when so many people are willing to say "oops. My bad." I understand stuff happens. I really do- but that is why they make bankruptcy.

 

[tlenzendorf]

I am going to be honest and I am ready for the flames. You made a commitment to that mortgage. Sell the house and pay off the difference you owe. If you can't, declare bankruptcy because you are, in fact, bankrupt. My best friend wanted to move. Her house was $100K under water. They saved some money and cashed out some retirement. The market will never recover when so many people are willing to say "oops. My bad." I understand stuff happens. I really do- but that is why they make bankruptcy.

I could have declared bankruptcy, but then I would have written off my credit cards as well. I paid those. Why write off other debt I owe along with the house instead of just some of the house? That doesn't make much sense to me. The bank wrote off about $15,000 for the house. It would have been much higher if we had added the credit cards, more like $30,000.

 

[AZMermaid]

I could have declared bankruptcy, but then I would have written off my credit cards as well. I paid those. Why write off other debt I owe along with the house instead of just some of the house? That doesn't make much sense to me. The bank wrote off about $15,000 for the house. It would have been much higher if we had added the credit cards, more like $30,000.

Because all of us suffer when "the bank" writes off the money. You made your neighbors property values go down, your zip code's values go down, your city, your state. I live in a state where most of the short sales are $100K or more underwater and people are moving away because their house will not recoup the value in the next 10 year, not because of any real hardship. They just want to start over. So, I admit, I am a bit bitter about short sales in general. If someone really HAD to move, I don't have (much) issue with them. But I think the whole short sale movement has made it way too convienent for people to walk away and start over in a few years. We plan to live in our house the next 20+ years, so it really doesn't affect me that much, I just feel so bad for all of our friends who bought little starter houses in 2005 and now they are busting at the seams, but can't sell their house without losing $100-$150K because all of their neighbors walked away from their commitments.

 

[tlenzendorf]

Because all of us suffer when "the bank" writes off the money. You made your neighbors property values go down, your zip code's values go down, your city, your state. I live in a state where most of the short sales are $100K or more underwater and people are moving away because their house will not recoup the value in the next 10 year, not because of any real hardship. They just want to start over. So, I admit, I am a bit bitter about short sales in general. If someone really HAD to move, I don't have (much) issue with them. But I think the whole short sale movement has made it way too convienent for people to walk away and start over in a few years. We plan to live in our house the next 20+ years, so it really doesn't affect me that much, I just feel so bad for all of our friends who bought little starter houses in 2005 and now they are busting at the seams, but can't sell their house without losing $100-$150K because all of their neighbors walked away from their commitments.

Either way "the bank" would have written off money if I had declared bankruptcy or done a short sale. "They" lost less money by us doing a short sale and paying some back. I do feel bad for others who it caused a value loss to their home, but either way it was a lose-lose situation. I couldn't have paid the mortgage on my own and had no other options. Luckily in the county and state I live in the housing market depreciated(like everyone else's) not nearly as much. Mine only depreciated by about $25,000. I owned a condo and my attached neighbor really hosed my over when he sold his half for his loan value. About $60,000 less than what we were asking. He didn't need the money and sold it to a friend. I may have been able to get what I needed to cover the loan, but not with what he did. No one would pay even close to asking price.

 

[jedijill]

Because all of us suffer when "the bank" writes off the money. You made your neighbors property values go down, your zip code's values go down, your city, your state. I live in a state where most of the short sales are $100K or more underwater and people are moving away because their house will not recoup the value in the next 10 year, not because of any real hardship. They just want to start over. So, I admit, I am a bit bitter about short sales in general. If someone really HAD to move, I don't have (much) issue with them. But I think the whole short sale movement has made it way too convienent for people to walk away and start over in a few years. We plan to live in our house the next 20+ years, so it really doesn't affect me that much, I just feel so bad for all of our friends who bought little starter houses in 2005 and now they are busting at the seams, but can't sell their house without losing $100-$150K because all of their neighbors walked away from their commitments.

Many of us didn't expect the housing market to tank. I had to move away from my home to keep a job. I had it on the market for a year. I finally found renters and I pray every day that they stay as I can pay some down on the principal to get to where the market is now. No, I didn't over buy a house. I have a fixed rate VA loan. We are trying to do the best we can with the hand that the economy has dealt us.

jill in CO

 

[DianeV]

Believe me our realtor told us a large majority of homes for sale right now are either short sales or foreclosures. Dont blame someone who is in a bad situation for bringing the values down. They are already down, hence the reason for the short sales and foreclosures!

Do you really think anyone asked for this to happen to them?

 

[cats mom]

Because all of us suffer when "the bank" writes off the money. You made your neighbors property values go down, your zip code's values go down, your city, your state. I live in a state where most of the short sales are $100K or more underwater and people are moving away because their house will not recoup the value in the next 10 year, not because of any real hardship. They just want to start over. So, I admit, I am a bit bitter about short sales in general. If someone really HAD to move, I don't have (much) issue with them. But I think the whole short sale movement has made it way too convienent for people to walk away and start over in a few years. We plan to live in our house the next 20+ years, so it really doesn't affect me that much, I just feel so bad for all of our friends who bought little starter houses in 2005 and now they are busting at the seams, but can't sell their house without losing $100-$150K because all of their neighbors walked away from their commitments.

Yes, but how much did those houses appreciate from approx 2000 - 2006? Was that appreciation due to solid wage growth, or was it more likely due to the abundance of creative affordability products?

I lived in AZ then so I witnessed the real estate boom first hand. It was crazy! Houses in our neighborhood more than doubled in price in less than 5 years. The local economy was good, but it certainly wasn't that good. It made no sense that prices reached the levels they did.

This may seem harsh, but I think short sales and foreclosures are not the problem, they're the answer. They're necessary to clear unsustainable debt and return prices to levels that make sense based on local rents, incomes, and historical norms.

Yes, it sucks for people who bought when prices were inflated, but does it make sense to keep pulling more and more people into a real estate market where prices are still artificially inflated? Doing so just means that everyone who buys a house will have to allocate more income to debt service than they would have if there had been no RE bubble, instead of having that income available to help the economy grow (since it seems our economy is based largely on consumer spending).

Just another point of view.

 

[AZMermaid]

Okay- I totally agree that the houses were totally inflated. But- I have many friends who bought a house the right way, 20% down 30 year fixed in 2005 and are totally screwed because people keep walking away. Many of these people refinanced their homes when the market was so high and then walked away from it. Why don't they have to return their boats, cars, jewelry etc etc? Our house is a foreclosure. The former owners bought it in like 2001 for $250K. They refi-ed in 2006 for $700K and foreclosed in 2009. We saw a LOT (like 15+) houses with the same story. We bought it for $350K. Did we get a good deal, thought so. Now we are down to $325K, but we'll be here for 20 years, so it's fine. No-one forced people to buy in 2005. If they did, the committed to pay XXX amount. Unless there is a job loss or something, they should stick with it and not short sell just because they can.

 

[cats mom]

Okay- I totally agree that the houses were totally inflated. But- I have many friends who bought a house the right way, 20% down 30 year fixed in 2005 and are totally screwed because people keep walking away. Many of these people refinanced their homes when the market was so high and then walked away from it. Why don't they have to return their boats, cars, jewelry etc etc? Our house is a foreclosure. The former owners bought it in like 2001 for $250K. They refi-ed in 2006 for $700K and foreclosed in 2009. We saw a LOT (like 15+) houses with the same story. We bought it for $350K. Did we get a good deal, thought so. Now we are down to $325K, but we'll be here for 20 years, so it's fine. No-one forced people to buy in 2005. If they did, the committed to pay XXX amount. Unless there is a job loss or something, they should stick with it and not short sell just because they can.

This is likely to make you really frustrated then...

If you delve into the mess I think you'll find plenty of people who are gaming the system beyond belief and making things even worse for folks who tried to play by the rules, but got caught up in some bad timing.

I recently read a profile on a family who paid just over a million dollars for their house in 2006, stopped making payments in 2008, and the foreclosure auction didn't take place until 2011. And since foreclosures are non judicial here, the lender can't pursue any kind of deficiency judgement. These folks lived payment free for almost 3 years!

Wanna know what the main focus of the article was? How more and more companies are targeting former loan owners who have shed their debt through short sale or foreclosure because marketers recognize that this group now has greater disposable income now. Crazy huh?

 

[dakcp2001]

Okay- I totally agree that the houses were totally inflated. But- I have many friends who bought a house the right way, 20% down 30 year fixed in 2005 and are totally screwed because people keep walking away. Many of these people refinanced their homes when the market was so high and then walked away from it. Why don't they have to return their boats, cars, jewelry etc etc? Our house is a foreclosure. The former owners bought it in like 2001 for $250K. They refi-ed in 2006 for $700K and foreclosed in 2009. We saw a LOT (like 15+) houses with the same story. We bought it for $350K. Did we get a good deal, thought so. Now we are down to $325K, but we'll be here for 20 years, so it's fine. No-one forced people to buy in 2005. If they did, the committed to pay XXX amount. Unless there is a job loss or something, they should stick with it and not short sell just because they can.

I did the right thing, purchased a home in 2004. I put 20% down and then put 25K worth of work into the house. My life savings went into this home. I love this home. Then I had to relocate for work in 2009. I can't afford to be unempolyed. The house has been vacant for 2 years sitting on the market while the price drops and drops and drops. It is now worth about 100K less than I paid and still not selling. I can't afford to keep paying this and my current rent . We tried renting that was a disaster.

What you you, in your brilliant wisdom, prospose I do to "do the right thing" ? The banks didn't do the right thing. I am struggling to pay both living expenses and rent here and the mortgage there on the other side of the country. The bank won't finance me a loan for the difference, so I can't dump the house and then pay back the difference.

Boy I wish we could all live in your perfect little world. You might have a scary moment when your little bubble breaks though. Hope you never have to relocate or experience a lay off. You might not be able to live with yourself and your expectations. From my experience, people who judge the way you do, tend to fall hard at some point. Karma.

 

[jedijill]

I did the right thing, purchased a home in 2004. I put 20% down and then put 25K worth of work into the house. My life savings went into this home. I love this home. Then I had to relocate for work in 2009. I can't afford to be unempolyed. The house has been vacant for 2 years sitting on the market while the price drops and drops and drops. It is now worth about 100K less than I paid and still not selling. I can't afford to keep paying this and my current rent . We tried renting that was a disaster.

What you you, in your brilliant wisdom, prospose I do to "do the right thing" ? The banks didn't do the right thing. I am struggling to pay both living expenses and rent here and the mortgage there on the other side of the country. The bank won't finance me a loan for the difference, so I can't dump the house and then pay back the difference.

Boy I wish we could all live in your perfect little world. You might have a scary moment when your little bubble breaks though. Hope you never have to relocate or experience a lay off. You might not be able to live with yourself and your expectations. From my experience, people who judge the way you do, tend to fall hard at some point. Karma.

 

[Rafiki31]

I did the right thing, purchased a home in 2004. I put 20% down and then put 25K worth of work into the house. My life savings went into this home. I love this home. Then I had to relocate for work in 2009. I can't afford to be unempolyed. The house has been vacant for 2 years sitting on the market while the price drops and drops and drops. It is now worth about 100K less than I paid and still not selling. I can't afford to keep paying this and my current rent . We tried renting that was a disaster.

What you you, in your brilliant wisdom, prospose I do to "do the right thing" ? The banks didn't do the right thing. I am struggling to pay both living expenses and rent here and the mortgage there on the other side of the country. The bank won't finance me a loan for the difference, so I can't dump the house and then pay back the difference.

Boy I wish we could all live in your perfect little world. You might have a scary moment when your little bubble breaks though. Hope you never have to relocate or experience a lay off. You might not be able to live with yourself and your expectations. From my experience, people who judge the way you do, tend to fall hard at some point. Karma.

This is similar to what happened to us. My husband had to relocate for his job after a layoff and he is the primary breadwinner. We also tried renting, what a mess! We also tried to get a personal loan or unsecured loan for the difference the bank basically laughed at us. So this is why I don't feel some sort of weird obligation to make the bank whole again. The bank has been so diffiucult to work with and really has only made things more difficult. The bank people have been rude and insulting as well. Our home has also been on the market for a very long time and unfortunately what we owe is way off from what the market dictates right now. We cannot compete with the forclosures on my block and they just keep coming and coming. Our home is priced at 200K, there are three on my street in the 80's. They are trashed though and ours is in good condition but still no one is going to pay a normal price when they could get one of those and fix it. But here is the thing NOTHING is selling at all in my area regardless of the price.

I am not sure what planet you live on az mermaid, but there is nothing easy or convienent about a short sale. Your bitterness seems a bit directed at the wrong people. Your suggestion to go bankrupt is absurd. I will pay off all the rest of my debt (that is accumulating at an alarming rate due to the double living expenses). Once the albatross of a house is gone, I will be able to pay the rest. In what warped sense of reality is it better to go bankrupt and stiff all the lenders instead of just getting rid of the one that is the problem?

Sure it would be nice to get rid of all the debt, but why on earth would we do that? How is that better? Your logic seems so off to me. I am not bankrupt.

Please explain to me how you think bankruptcy is better. Please back up your point of view that this is better. I have yet to see any reasonable explanation for your opinion on this?

 

[AZMermaid]

I stated that I didn't really have an issue when people have to move (ie relocation, job loss etc etc). But in AZ at least, MOST of these short sales are people who have realized that their home will not recoup its value and just short sell it to be done with it and they can start over in a few years. Or they are people who had no business buying a house, put 0% down and had an adjustable mortgage. It isn't right. At a MININUM, I feel like they should have to pay back the bank for all those months they just stopped paying to get to the point where they could do the short sell. It also frustrates me that all these people (again in AZ where things are really nuts) took hundreds of thousands of dollars of "equity" out of their homes 5 years ago and now are foreclosing and short selling. Where is the personal accountability for those people?

As far as the "right thing." I don't know. I understand there are hardships and people may NEED to get out and a short sale is an option. I am okay with that. For all those people who just WANT to move and see what their home is worth, I think they should do as my best friend did- save their money, cash out some retirement or savings and pay it off. I believe my best friend had to pay off somewhere in the $120K neighborhood. But at least she can hold her head up high and they are now in their "forever home" which ironically, cost less than their "starter home."

 

[AZMermaid]

Our home is priced at 200K, there are three on my street in the 80's. They are trashed though and ours is in good condition but still no one is going to pay a normal price when they could get one of those and fix it. But here is the thing NOTHING is selling at all in my area regardless of the price.

My friend was in this situation and it was SUPER frustrating for her- part of the reason for my harsh opinions. Her home was totally remodled and in perfect move in condition. Her neighborhood (trashed short sales mostly) was pricing for $160-$200K, so even though they paid $380, they listed it for $200K and it sold in 2 days. You have to price it at market value. This is why people whine their house isn't selling. Sorry, you gotta price it for what it is worth, even if that stinks. Even then, it did not appraise, so they ended up taking $180K. They paid off the difference using savings and retirement.

Bankruptcy makes you take the hit for the next 7 years, not 3.